What are the dangers in a construction professional giving a certificate of satisfaction to the building society?
The first thing to understand is that the certificate required by a building society is an entirely different thing to the certificate that an architect will routinely issue under a standard building contract.
The certificate, or more likely several certificates throughout the progress of the project, is required by the building society to give it insurance against the money it has been asked to lend. Where the builder is registered with the National House-Building Council, the architect will not usually be asked to give a certificate, because the guarantees of the NHBC are usually acceptable to the building society.
If, during or at the end of a project, the employer asks the architect to provide a certificate of satisfaction (sometimes referred to as a Professional Consultant’s Certificate) and if, in the terms of engagement, the architect has not agreed to give such a certificate, there is no obligation to give one. Many architects, and their clients, will argue that if they have been engaged for a full service by their clients, they should be prepared to give the certificate at the end, because to do otherwise is tantamount to saying that they have no confidence in the work they have done. To take that point of view is to misunderstand the purpose and implications of giving such certificates. If an architect has been negligent in performing the services, the client can quite easily take legal action under the terms of the conditions of engagement. Whether such action takes the form of arbitration or legal proceedings through the courts depends on the terms of the engagement. The fact remains that the client has a perfectly adequate remedy for any default on the part of the architect and a separate remedy under the building contract for any defects in construction.
Why does the building society want a certificate before it will lend any money? The building society has an agreement with the architect’s client, but it has no agreement with the architect. By completing the certificate, the architect is not only certifying that his or her own work has been performed properly, but also that the contractor’s work has been carried out correctly in accordance with the building contract. At one time, architects used to be able to offer their own watered-down version of a certificate, in which their liability was very much restricted. More recently, building societies and banks have insisted on architects signing the building societies’ and banks’ own forms of certificates.
Sometimes architects do work for developers that are their own builders – in other words, a builder that has decided to build a few ‘architect-designed homes’ for the speculative market. Usually such a builder could obtain NHBC registration, but it is cheaper to ask the architect to provide a certificate of satisfaction.
The giving of such certificates is very dangerous for the architect, who is thereby exposed to an increase in the number of people who could successfully bring an action for damages, and it also significantly increases the liability as noted above. Architects giving such certificates know, or will be presumed to know, that the certificates will be used not only for the purposes of obtaining funding but also for selling the property to future purchasers, who might rely on the certificates in lieu of a building survey. This reliance goes to the very heart of the architect’s liability. A building society or a future purchaser cannot bring an action against the architect in contract, because they have no contract with the architect. However, they can bring an action against the architect in tort on the basis of the certificates. Without the certificates, an action against the architect in tort for negligence would be very difficult to sustain.
The basis for the action is an old case called Hedley Byrne & Co Ltd v Heller & Partners. Put very simply, if a professional person gives advice to a person or class of person knowing that the advice will be relied on and if the person receiving the advice does rely upon it and, as a result, suffers loss, the professional will be liable for such loss. See Question 52 for the ways in which this liability may be extended beyond professional advice in certain circumstances. Architects should refuse to give such certificates if not legally obliged to do so. If an architect does agree to give such a certificate, a substantial additional fee if indicated.